Bank Regulators Seize Burritt

Bad Real-estate Loans Blamed

Burritt Doomed By Big Losses From Loans

December 05, 1992|By JOANNE JOHNSON; Courant Staff Writer

Burritt InterFinancial Bancorporation, the 103-year-old bank that once was the hub of central Connecticut finance, was seized by the government Friday, losing a long and painful fight to survive heavy losses.

The FDIC will reimburse those depositors promptly for $100,000 and 72 percent of their balances in excess of that amount, FDIC spokesman Andrew Porterfield said. How much of the remaining 28 percent depositors ultimately collect will depend on how much the FDIC can raise by selling off Burritt assets, he said.

Most Burritt customers should not notice any interruption in service, Porterfield said.

Derby Savings, the state's 17th-largest bank with assets of $740 million, plans to reopen 11 of Burritt's 13 branches for business as usual Monday, officials said. Only the Southington and

Vernon offices will not reopen.

Harry P. DiAdamo Jr., president of Derby Savings, said his bank expects to offer permanent jobs to almost all of Burritt's 182 full-time employees because the two banks' operations did not overlap.

Burritt was founded in New Britain in 1889 and grew by offering passbook savings accounts and home mortgages to local residents.

But nearly 100 years after its founding, the bank strayed from its traditional business. It entered the lucrative but risky world of commercial real estate lending, making loans more aggressively than most banks its size to the likes of Colonial Realty Co. and other big developers in the 1980s.

When New England's real estate market collapsed at the end of the decade, the bank's exposure to bad real estate loans was high.

Toward the end, the once-proud Burritt name also was dragged into a scandal involving other banks that regulators charge engaged in bank fraud.

Burritt had been working under regulatory orders on a sweeping recovery plan designed to cut costs and improve the bank's loan portfolio after large losses, mostly tied to commercial real estate loans.

In March, regulators had directed the bank to increase its capital, or financial cushion, as well as its loan loss reserves, the pool that protects a bank against loans that aren't being repaid.

In May, the bank had hired Patrick W. Wisman, a longtime banker with experience in turning around troubled companies, as president to lead the recovery effort. But in the end, the economy proved too much.

"Although management took a number of prudent measures in an effort to cut operating expenses, initiated steps to weather the ongoing decline in commercial real estate investments and sought various options to raise capital, it wasn't sufficient," McGrath said.

McGrath said problems in Burritt's commercial loan portfolio first surfaced in late 1990. Burritt lost $11.8 million in 1990 and $22.3 million last year.

It lost $6.3 million for the first nine months of 1992. Its capital dropped to $9 million at the end of the third quarter.

That gave the bank a capital-to-assets ratio of 1.7 percent, significantly below the regulatory minimum of 3 percent.

At the same time, Burritt's bad loans and other nonperforming assets continued to increase, reaching $70.6 million at the third-quarter close Sept. 30.

"The bank's inability to recapitalize and its continued high level of nonperforming assets left regulators with no alternative but to seek a buyer for the institution," McGrath said.

"For Burritt, it was not a matter of `if,' but `when,' " said James E. Moynihan Jr., an analyst for Advest Inc.

Burritt led a group of six banks that pushed Colonial Realty of West Hartford into bankruptcy in September 1990, claiming the giant realty firm couldn't pay the institutions the more than $40 million it owed them.

Burritt said in court papers that Colonial and its partners had defaulted on loans it had made totaling $350,000.

Burritt's name also has been dragged into a scandal involving seven other institutions that regulators charge were involved in

widespread fraud.

The government is seeking to recover about $35 million in damages from officers of the failed Security Savings and Loan Association of Waterbury and six other banks they contend engaged in banking irregularities.

Regulators do not believe Burritt was part of the ring called the "Penta Group," which they say engaged in crisscrossing loans to real estate partnerships whose members typically included other banks' officers.

But one lawsuit charges that J. Brian Gaffney, a New Britain lawyer and former Republican state chairman, abused his seat on Burritt's board to arrange Burritt loans for former Security officers.

Gaffney's law firm has represented some of the Penta Group members including Security. Gaffney has denied any wrongdoing. He could not be reached for comment Friday.

Meanwhile, Derby Savings looked upon the Burritt acquisition as a chance to grow quickly. It nearly doubles Derby Savings' size.